Powell Remains Hawkish

Fed Chair Jerome Powell should be very concerned about the rapid disinversion of the yield curve since early July as the bond yield soared from around 4.00% to nearly 5.00% today. If he is, he didn't show it during his interview today. Instead, he noted that the economy remains strong and monetary policy might have to be tightened some more: "We are attentive to recent data showing the resilience of economic growth and demand for labor. Additional evidence of persistently above-trend growth, or that tightness in the labor market is no longer easing, could put further progress on inflation at risk and could warrant further tightening of monetary policy."

Powell characterized the bond market debacle in recent months as another sign of tightening credit conditions rather than as a very significant tightening of monetary policy that is equivalent to at least two if not four 25bps hikes in the federal funds rate, in our opinion.